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Written by:
Prachi Singh
Contributing Writer
Prachi is an insurance writer with a master’s degree in business administration. Through her writing, she hopes to help readers make smart and informed decisions about their finances. She loves to travel and write poetry.
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Reviewed by:
Laura Longero
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Executive Editor
Laura Longero is an insurance expert and Executive Editor at CarInsurance.com, where she specializes in helping consumers navigate the complexities of the financial and insurance industries. She has 15 years of experience educating people about finance and car insurance. Prior to joining CarInsurance.com, she worked as a reporter and editor at the USA Today Network. Her expertise provides readers with practical guidance, helping them make informed choices about their financial and insurance needs.
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Question: Does having a bank loan on a car versus owning it outright affect your car insurance rates?

Answer:  Whether you financed your car with a bank loan or bought it outright with cash shouldn’t make a difference in your car insurance rates since this information isn’t a rating factor used to calculate your premium.

You might find that you’ll carry more insurance coverage if you finance a car, which in turn may cause your auto insurance premiums to be higher than if you bought a car with cash and chose less coverage.

When you get a car loan, it’s usually required in your finance agreement that you carry not only state-mandated coverages but also physical damage coverages of collision and comprehensive and must choose a deductible of $500 or less for these coverages.

In cases where you lease a vehicle, the leasing company will normally require that you carry collision and comprehensive as well as higher liability limits in the amounts of $100,000 per person and $300,000 per accident for bodily injury liability, and $50,000 for property damage liability.

Remember, these are requirements from the financier, not the insurance company, so it’s the higher limits and extra coverages that will cause your car insurance to cost more, not the fact that you don’t own the car outright.

If you do buy a car with cash, then you can decide, all on your own, if you want more than the state minimum car insurance requirements.

If your car is newer, you will normally want physical damage coverages to protect your car, but you may choose deductibles of over $500 to save money since a higher deductible tends to give your lower rates for collision and comprehensive coverages.

While if your car is financed or owned isn’t a rating factor, you may find that when you apply for a policy, some car insurance companies will ask if your car is fully owned or has a lienholder on it. If you say you’re financed, then these car insurance companies will only offer you a policy that includes collision and comprehensive.

No matter if you have a bank loan on or not on your car, the best way to get the cheapest car insurance rates is to shop around.

Penny Gusner contributed to this story.

Laura Longero

Ask the Insurance Expert

Laura Longero

Executive Editor

Laura Longero is an insurance expert and Executive Editor at CarInsurance.com, where she specializes in helping consumers navigate the complexities of the financial and insurance industries. She has 15 years of experience educating people about finance and car insurance. Prior to joining CarInsurance.com, she worked as a reporter and editor at the USA Today Network. Her expertise provides readers with practical guidance, helping them make informed choices about their financial and insurance needs.

John McCormick

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John McCormick

Editorial Director

John is the editorial director for CarInsurance.com, Insurance.com and Insure.com. Before joining QuinStreet, John was a deputy editor at The Wall Street Journal and had been an editor and reporter at a number of other media outlets where he covered insurance, personal finance, and technology.

Leslie Kasperowicz

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Leslie Kasperowicz

Executive Editor

Leslie Kasperowicz is an insurance educator and content creation professional with nearly two decades of experience first directly in the insurance industry at Farmers Insurance and then as a writer, researcher, and educator for insurance shoppers writing for sites like ExpertInsuranceReviews.com and InsuranceHotline.com and managing content, now at CarInsurance.com.

Nupur Gambhir

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Nupur Gambhir

Managing Editor

Nupur Gambhir is a content editor and licensed life, health, and disability insurance expert. She has extensive experience bringing brands to life and has built award-nominated campaigns for travel and tech. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service.

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Contributing Writer

Prachi is an insurance writer with a master’s degree in business administration. Through her writing, she hopes to help readers make smart and informed decisions about their finances. She loves to travel and write poetry.